Geely Needs $1.4 Billion in Working Capital to Substantiate the Purchase of Volvo
Money, Money, Money! Whoever said buying a brand would be easy obviously doesn’t know what they are talking about. Of course, I doubt anyone has ever said that, but that’s what it seems like. Ford and Zhejiang Geely Holding Group Co. have been in talks over Volvo for about an eternity and the crap keeps getting deeper as the boots keep getting taller. Volvo union officials have said that Geely would need about $1.4 billion USD after the purchase price of $2 billion USD to substantiate the purchase of the brand.
The figure would be “an absolute minimum” for financing car development, marketing, production and distribution in the next year, and the money needed could be double that amount, Glenn Magnusson, head of the managers’ union at Gothenburg, Sweden-based Volvo, said in an interview.
Four unions said Feb. 5 that they would accept Geely as the new owner of Volvo as long as the Chinese manufacturer proves it can fund operations.
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“We still want them to show us that they have the financial strength,” Magnusson said yesterday on a telephone interview with Business Week. “We haven’t seen anything yet and we are not satisfied.”
Mark Truby, a spokesman at the Dearborn, Michigan-based company says that Ford is “still working toward a definitive agreement by the end of the first quarter and to close the sale by the end of the second.”
The decision to sell Volvo comes after Ford CEO Alan Mulally started pushing the “One Ford” philosophy. This philosophy has lead to the extinguishment of brands such asJaguar, Landrover, and Aston Martin from the Ford lineup. However, this decision has come with a price. Ford purchased Volvo at a not so bargain price of $6.5 billion USD back in 1999. For those of us who are not good at math that is a loss of $4.5 billion USD on the purchase alone.
Meanwhile, Geely, China’s largest private automaker based on 2008 sales plans to build about 200,000 Volvos each year in China. Geely “will need to invest in Volvo’s operations at least as much as they’re paying to buy us,” Magnus Sundemo, a Volvo board member who represents the engineering union, said in a telephone interview. “We have big investment needs, especially if we’re going to grow significantly in China.”
Source: Business Week